Capital gains tax: Small business roll-over: extension of time to acquire replacement asset

Will the Commissioner, pursuant to subsection 152-420(3) of the Income Tax Assessment Act 1997 (ITAA 1997), extend the time limit set out in subsection 152-420(1) of the ITAA 1997 for the taxpayer to acquire a replacement asset?

Yes, in the particular circumstances described, the Commissioner will extend the time limit set out in subsection 152-420(1) of the ITAA 1997 for the taxpayer to acquire a replacement asset.

The taxpayer operated two retail businesses, the first acquired in February 1999 (Business A) and the second in February 2000 (Business B). Negotiations for the sale of the Business A commenced in December 2000. Due to delays by the purchaser a contract for the sale of the Business A was not made until April 2001.

The taxpayer wants an extension of the roll-over period so that the assets of the Business B can be regarded as replacement assets for the purposes of the small business roll-over.

Under subsection 152-420(1) of the ITAA 1997, for an asset to be a replacement asset it must be acquired during the period starting one year before, and ending two years after, the happening of the last CGT event in the income year for which the small business roll-over is obtained.

In this case, the relevant period for the purposes of subsection 152-420(1) of the ITAA 1997 starts in April 2000 and ends in April 2003 ie, the relevant period is one year before and two years after the CGT event happening in April 2001. The taxpayer wants to choose assets of the Business B that were acquired in February 2000, as replacement assets for the Business A assets sold in April 2001. Although the assets of the Business B were acquired in February 2000, which falls outside the relevant period, the Commissioner may exercise his discretion to extend the time limit, as provided in subsection 152-420(3) of the ITAA 1997.

In Determining if the discretion would be exercised the Commissioner has considered the following factors: - there should be evidence of an acceptable explanation for the period of extension requested and that it would be fair and equitable in the circumstances to provide such an extension.; - account must be had to any prejudice to the Commissioner which may result from the additional time being allowed, however the mere absence of prejudice is not enough to justify the granting of an extension; - account must be had of any unsettling of people, other than the Commissioner, or of established practices; - there must be a consideration of fairness to people in like positions and the wider public interest; - whether there is any mischief involved; and - a consideration of the consequences.

Having considered the relevant factors above and the specific circumstances of this case, including: - the negotiation process commenced within the relevant period for small business roll-over under 152-420(1) of the ITAA 1997; - the replacement assets were acquired a short time outside the relevant period under 152-420(1) of the ITAA 1997; - the delays in the negotiation process caused by the purchaser were beyond the control of the rulee,

The Commissioner will exercise the discretion under subsection 152-420(3) of the ITAA 1997 to extend the period for acquiring the replacement asset from April 2000 to February 2000, i.e., 14 months before the date of disposal of Business A.